Aecom's purchase of S.F. firm URS seen as big boost for L.A.

Andrew S. Ross

Published 5:38 pm, Monday, July 14, 2014

Score one for L.A.

At least that's how the $6 billion acquisition of San Francisco's URS by Los Angeles design and construction company Aecom is being greeted down south. "Los Angeles is one of the most exciting cities in the world," Aecom CEO Michael Burke told the media in Southern California on Monday. "It has a great pool of talent. It's a gateway to the Pacific."

San Francisco, with its pool of talent and Pacific gateway appeal, at least symbolically, loses an $11 billion 63-year-old company that has designed, built and managed space centers, nuclear power plants and medical centers all over the world.

Not that URS shareholders will be unhappy. The deal gives them "a right on the future as well as a cash takeout," said CEO Martin Koffel, referring to the $56.31 per share cash, stock and debt assumption in a conference call. "This is a compelling strategic combination that we believe will benefit our clients, stockholders and employees," he added in a statement.

While they generally praised the deal, the announcement came as a surprise to some stock analysts, although it was thought that something might be in the wind after private equity stockholders started making complaining noises, and the company created a "value creation committee" to explore options.

"It could have been breaking the company up into parts, redirecting cash away from diminishing assets, or something else. That it resulted in the sale of the entire company was a surprise," said Adam Thalhimer, a senior analyst at BB&T Capital Markets in New York. "But look at the combined cash flow of the two companies ($19 billion in revenue). The math was pretty compelling," said Thalhimer, who upgraded Aecom stock from a hold to a buy Monday.

Not too surprising, seeing that the chief synergy touted by Thalhimer and other analysts is URS' strength in the booming oil and gas (e.g., fracking) and industrial structures sectors, in which Aecom has less of a presence.

The joint statement also referred to an expected "$250 million in annual cost-saving synergies" by 2016. Few details were available, apart from cuts coming in corporate, real estate and "other overhead," according to a slide at Monday's investor presentation. Currently, the two companies employ 95,000 people in 150 countries, and Burke said he would be adding to the combined 1,300 job count in Los Angeles, mostly architects, engineers and construction managers. URS has approximately 300 employees in San Francisco.

"Aecom also expects to maintain a key operational presence in San Francisco, where URS is headquartered," according to the joint statement. What happens to URS' 50,000 employees in 50 countries remains to be seen.

"Look, this is a people-intensive business. We'll be wanting more people," Koffel, who lives in San Francisco, said in a telephone interview. As for my hint that maybe San Francisco was getting dissed in the transaction, he said. "I understand there is this rivalry - mostly made up by the press. But this combination creates one of the largest construction companies in the world, right here in California. I'm proud of that," Koffel said. "At the end of the day, this is not about San Francisco or Los Angeles, it's about California and the West Coast."

Money for shattered lives: California's share of the $7 billion Citigroup is coughing up to atone for its part the subprime mortgage collapse: $200 million. Some payback, said Attorney General Eric Holder, announcing the national settlement, for Citi's contribution to "shattered lives and livelihoods throughout the country and around the world."

Of that amount, $102 million goes to reimburse the California Public Employees' Retirement System and California State Teachers' Retirement System, plus an additional $90 million for "consumer relief" to underwater homeowners, said Attorney General Kamala Harris.

Latest from the SFGATE homepage:

Click below for the top news from around the Bay Area and beyond. Sign up for our newsletters to be the first to learn about breaking news and more. Go to 'Sign In' and 'Manage Profile' at the top of the page.